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INDEX

Sr.No. Content Page No.

1 Objective of the study & Proposed Methodology 5

2 Background 6-7

- Banking Scenario 6

- Raising of Finance 7

3 About S Bank 8-11

- Bank Profile 8

- Credit Facilities Provided by S Bank 9

4 Corporate Finance Process 12-36

- Appraisal 13

- Credit Rating 24

- Credit Sanction & Documentation 28

- Credit Disbursement & Charging of Securities 30

- Credit Monitoring 32

- Recovery 34

5 S Banks Credit Portfolio & Analysis of Credit Lending

Pattern

37-42

- Industry wise Analysis 39

- Sanctions 41

- Fund wise Analysis 42

6 Credit Appraisal of ABC Ltd. 43-76

7 Learning 77

8 References 78

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OBJECTIVE OF THE STUDY

A considerable importance has been placed on the role of commercial banks bysuccessive Governments in the development of the economy of our country. It is almost

certain that a bank will be associated with every project of industry/trade or business

irrespective of its size. The banks are now certainly catering to the credit needs of a largevariety of projects, big or small, in all the sectors of economy including agriculture, trade,

industry and services etc. Granting of short term finance for working capital requirements

has always remained an area exclusively reserved for commercial banks. Banks have nowassumed the role of a development institution in promoting small projects in all the

sectors of economy besides increasing their presence even in big industrial projects.

The lending policies of banks have also undergone a sea change with the passage of timeand there had been a few historical events which had an important bearing on the general

approach of a banker towards lending.

The objective of this study is to envisage ideal framework of corporate financemanagement for Indian Banks. It will be of interest to have a brief discussion of various

approaches of banks towards lending and their relative importance in present scenario.

The scope of project includes study of -

1. The different types of credit facilities provided by the bank.

2. The credit assessment techniques for different types of credit facilities.

3. The credit appraisal and monitoring standards to meet genuine credit needs of

clients.4. The credit evaluation system.

5. Banks credit portfolio and analysis of its credit lending pattern.

PROPOSED METHODOLGY:

The information on the project under study will be obtained from the Bank employees

and officials. Also I have to study various files and the official correspondence of theBank The next stage is to understand the actual corporate finance process adopted by

S Bank. It includes understanding of the credit proposals of certain selected borrowers

as prepared by the Bank. Also banks credit portfolio will be analyzed. The methodologyalso includes making actual proposal of one of its proposed clients, which will help to get

practical experience of the corporate finance methodology.

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BANKING SCENARIO

The financial system is the lifeline of the economy. The changes in the economy getmirrored in the performance of the financial system, more so of the banking industry.

The Indian banking can be broadly categorized into nationalized, private banks and

specialized banking institutions. The Reserve Bank of India acts as a centralized body

monitoring any discrepancies and shortcoming in the system. It is the foremostmonitoring body in the Indian financial sector. The nationalized banks (i.e. government-

owned banks) continue to dominate the Indian banking arena. Industry estimates indicate

that out of 274 commercial banks operating in India, 223 banks are in the public sectorand 51 are in the private sector. The private sector bank grid also includes 24 foreign

banks that have started their operations here. Under the ambit of the nationalized banks

come the specialized banking institutions. These co-operatives, rural banks focus on

areas of agriculture, rural development etc. Indian nationalized banks continue to be the

major lenders in the economy due to their sheer size and penetrative networks whichassures them high deposit mobilization.

The banks before nationalisation were generally catering to the needs of large industrial

houses and big trade and laid a great emphasis on the safety of their funds and insistedupon availability of good tangible security to cover the advance. Offer of an acceptable

form of good tangible security would always have a very positive influence on the

decision of the banker to grant advance. This approach resulted in cornering out of scarcefinancial resources available with banks by a small group of individuals and other users

who had necessary security to offer to the banks. This process also resulted in ignoring

the genuine needs of other prospective borrowers who could not provide required security

though they had good project in hand. This was truly an example of class banking andwas cited as an important reason for nationalisation of 14 major commercial banks in

1969 by Government of India. It was envisaged to redistribute the financial resourcesavailable in the economy in a more equitable manner and to ensure that credit needs of all

the sectors of economy and all sort of borrowers are adequately met. It was the first major

steps towards the march to mass banking.

Economic Liberalization & Financial Sector reforms introduced in 1991 followed bySecond Phase of Financial Sector reforms in 1997 ushered in an era of fast track growth

in size, technology and deliverables of Banks in India.

The financial sector reforms gradually moved the Banking Industry from a regulatedenvironment to a deregulated market economy. In this process, banking operationstransformed from its traditional intermediary role to a business of risk return trade off.

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RAISING OF FINANCE

Finance for a project in India can be raised by way of:

(a) Share Capital

(b) Long-term Borrowings(c) Short-term Borrowings

Both share capital and long-term borrowings are used to finance fixed assets plus the

margin money required to obtain bank borrowings for working capital. Working capital is

financed mainly from bank borrowings and from unsecured loans and deposits.

Term finance is mainly provided by various banks, All India Development Banks,

specialized financial institutions and investment institutions. In addition, term finance isalso provided by the state financial corporations, the state industrial development

corporations and commercial banks.

The role of the financial & banking institutions is not merely confined to lending of

funds. They render non fund based facilities as well like opening of letter of credit, issue

of bank guarantees etc. besides there are private investment companies involved in direct

and indirect financing of the projects and also extending lease financing.

Depending on the size of borrowings, the borrower can avail of term loan as well as

working capital limits from either a single or a number of financial institutions andcommercial banks. Hence, mode of finance can be of three types. They are

1. Sole Banking: Only one bank looks after all the financial requirements of the

borrower.

2. Multiple Banking: Different banks provide finance and different banking facilities

to a single borrower without having a common arrangement and understandingbetween the lenders. The practice of multiple banking has increased tremendously

during the last years. This is due to the increasing competition and the bankers

desire to grow in a short span of time.

3. Consortium Financing: Under consortium financing, several banks (or financial

institutions) finance a single borrower with common appraisal, commondocumentation, joint supervision and follow-up exercises.

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ABOUT S BANK

S Bank was founded on 26th May, 1938. It became a Public Ltd. Company in

December 1939. In July 1969, S Bank Ltd. along with 13 other major banks was

nationalized and is now a Public Sector Bank constituted under the Banking Companies(Acquisition & Transfer of Undertakings) Act, 1970.

Milestones:

One among six Public Sector Banks selected by the World Bank for sanctioning a

loan of Rs.72.3 crores for augmentation of Tier-II Capital under Financial SectorDevelopmental project in the year 1995.

One among the few Banks to receive the World Bank loan for technological up

gradation and training.

Launched a Bond Issue of Rs.92.13 crores in November 1996.

Maiden Public Issue of Rs.180 Crores in November 1996.

Introduced Tele banking facility of selected metropolitan centers.

The first bank to introduce:

Minor Savings Scheme.

Credit card in rural India known as "KRISHI SAKH PATRA" (KSP).

Drive-in ATM counters of Juhu, Mumbai.

Smart card at selected branches in Mumbai.

Customer rating system for rating the Bank Services.

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CREDIT FACILITIES PROVIDED BY BY S BANK

S Bank provides financial assistance to the business entities engaged in various

activities of manufacturing, trading and service.

The Bank endeavors to increase credit exposure to all types of customers, Individual,

Proprietorship concerns, Partnership firms, Companies registered under Companies Act,

Association of persons and Undertakings owned by Governments including PSUs.

Banks credit is broadly covered under Priority Sector and Non-Priority Sector lending.

Bank adopts the RBI guidelines on Lending targets set under Priority Sector:

In area of corporate segment, Bank extends credit to reputed Corporate in Large and Mid

Corporate categories with Credit rating of good order. Financial services provided by

Bank can be broadly categorized as follows.

A] Fund Based Credit Assistance

The Financial assistance is provided for setting up new projects, acquiring assets and also

for meeting day to day working capital requirements of the constituents. These

assistances are termed as Long Term Finance & Short Term Finance respectively.

1. Term Finance

Term Loan/Finance covers funds required for acquiring means of production such asland, building and plant and machinery etc. These could be for setting up new projects or

expanding the present activities. Term finance is generally given for a longer period and

is repayable in installments over the period with or without Moratorium. The period andthe installments are determined based on the repayment capacity of the project /

borrower.

Credit Facilities provided

by S Bank

Fund based Non Fund based

Term Loan

Working Capital

Letter of credit

Bank Guarantee

Deferred Payment

Guarantee

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2. Working Capital Finance

Working Capital Finance (WCF) is extended for carrying out normal trading/

manufacturing activities. The working capital finance is provided for a relatively shorter

period generally for a period of 1 year and renewed on yearly basis considering theperformance of the borrower.

The WCF is considered only after project nearing completion and after full tie up of termloan requirement.

Working Capital finance is in the form of pre-sale and post-sale limits. In Pre-SaleFinance the advance is granted for acquiring Inventory for production / processing or

trading purpose while the Post-Sale Finance is extended against the receivables. S Bank

encourages Post-sale finance in the form of purchase/discounting of bills etc.

Pre Sales Finance:

1. Cash Credit Hypothecation / Pledge against Stocks

2. Packing Credit Hypothecation / Pledge against Stocks

3. Clean Packing Credit Limit

4. Trust Receipts5. Working Capital Loan (Demand / Term)

Post Sales Finance:

1. Bills discounting / purchase Inland / Foreign2. Cash Credit Hypothecation against Book Debts

3. Advances against Export Incentives

4. Purchase of Cheques/Demand Draft

B] Non Fund Based Credit Assistance

The Business units also require Credit Assistance for procurement of Goods, where thefunds are not involved. Such facilities are available against the assured commitments /

guarantee from the Lending Institutions.

S Bank is extending such Non Fund Based assistance to the eligible units in the form of:

1. Issuance of Guarantee of various types like Performance, Financial, Bid Bond,Tender Deposit / Earnest Money etc. and

2. Issuance of Letter of Credit

3. Deferred Payment Guarantee

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Mode of finance:

S Bank provides financial services in the form of sole banking, multiple banking and

also in consortium with other banks. Consequent to withdrawal of the guidelines relating

to the Mandatory formation of consortium during the year 1997 by Reserve Bank ofIndia, banks enjoy discretion to adopt consortium / syndication / multiple banking routes.

With a view to participating in financing of large borrowal accounts and at the same time

to spread over the risks involved and also to ensure that the regulatory prescriptions onprudential exposure limits are generally not exceeded, it is proposed to increase Banks

participation in consortium advances. In the case of multiple Banking Arrangements, it is

ensured that security is clearly defined to each Bank or else pari-passu charge is created

wherever it is required.

Free flow of credit information is facilitated among the lending Banks as to the additional

credit facilities sanctioned / renewal of the existing facilities, legal actions, symptoms of

weaknesses in the operations of the account etc. For this purpose the bank insists uponconsortium leader to share with all member banks all material information including

"Asset Classification" at each quarter end.

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CORPORATE FINANCE PROCESS

A project report is essential before a decision for setting up of any project is taken. An

entrepreneur must study all aspects of the project including the product to be

manufactured, technical process involved in manufacturing, availability of infrastructure,plant and machinery, technology, skilled labor, marketing arrangements and prospects of

the product etc. An assessment of the total cost of the project and proposed means of

financing with emphasis on overall profitability of the project is also necessary. Projectreport must, therefore, include all these information and cover entire aspect of project to

stand scrutiny by financial institution who shall appraise the project from the following

angles before taking any decision to grant loans.

Technical feasibility.

Managerial competency.

Financial and commercial viability.

Environmental and economic viability.

It is, therefore, necessary that a proper project report is prepared examining all thesedetails.

Once the detailed project report is prepared, it is submitted to lending institutions for loanapproval and then corporate finance process starts.

This process mainly comprises of following six steps. They are

1. Appraisal of the project.

2. Credit Rating3. Credit Sanction and Documentation4. Credit Disbursement

5. Credit Monitoring

6. Recovery

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1. Appraisal:

The assessment by the bank is carried almost in the same manner as is done by otherlending institutions. The basic appraisal approach will nevertheless be the same and the

project has to stand scrutiny on its managerial capabilities, techno-economic viability,

marketability of products & services etc.

Since the appraisal of the project is carried on the basis of information given in the

project report, it is pertinent that complete and precise information is given in the firstinstance itself so as to avoid any delay in processing. The scope of information to be

furnished in project report is not limited to filling of loan application form but it must be

as detailed as possible covering each and every aspect of the project.

Gist of various particulars required by S bank in the project report is given below.

Check list for fresh proposal

1. Application form. All columns duly filled and signed

2. Article of association and Memorandum of association.3. CMA Data along with the authenticated audited balance sheet of last three years.

4. Tax audit report of last three years

5. Total limits enjoyed by the company/group companies with us/other financialinstitutions/other Banks

6. Unsecured Loans-Lenders of short-term loans/advances and subscribers to NCDs and

CPs. Interest rate being paid for the above.

7. Copy of the latest sanction letters, terms, and conditions from the entire consortiumBankers. Assessment note of the lead bank.

8. Latest stock inspection reports & stock audit report done by any consortiummembers.9. Details regarding Directors & Guarantors such as Name, age, their position, No. of

shares held, etc.

10. Latest personal balance sheet of the promoters and Guarantors along with copy ofIncome tax return.

11. Share holding pattern of the company. Name seven major shareholders.

12. Company profile

13. Demand/supply position of your products.14. Major players in the market and their market share with their website address.

15. Cyclical trends faced by the company

16. Government policies regarding your project.17. CA certificate regarding the statutory dues.

18. Whether the product is import substitute and if yes-local production cost and import

cost of the product.19. Availability of raw material, labour and other infrastructure.

20. Internal/External advantages for the technology used by the company.

21. SWOT analysis of the company22. Production capacity- Licence -Installed and utilised.

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23. Staff Position- Office staff/Factory staff skilled and Unskilled

24. ROC certificate for the authorised capital.

25. ROC registration for the company.26. Partnership deed if it is a partnership company.

27. Details of Associate/Subsidiary Companies and their Bankers along with address.

28. Name and address of the existing Bankers of the company.29. NOC for the Pollution Control Department.

30. Present O/s of the company in different Banks.

31. Name of other companies where the promoters and guarantors are Directors orpartners.

32. Latest stock statement.

33. Sales and Purchase figure till date.

34. Age wise Book debts.35. Detail of contingent liabilities of the company.

S bank has a predetermined proposal format in which it feeds all the above data. This

helps the bank to follow uniform appraisal system for all types of loans as well asprovides ease to carry on systematic appraisal process. While carrying out appraisal,

importance is given mainly to the following aspects.

A] Status of the concern:

Small scale and ancillary units, export oriented units etc command a priority allocation ofbanks lendable funds. The unit with a proven track record may get a little preferential

treatment. A concern which is establishing a new connection with some bank may be

required to give full details of its past performance etc. The documents required to besubmitted under this category may include:

Brief history of the concern which may cover a period since inception, the

line of activity, past record and also throw some light on the future prospects.

The details other associate concerns may also be given.

Exporter/importer code number.

Copies of certificates of registration as SSI unit.

B] About the Promoter:

It is the person behind any project who is most important for successful running of anyventure. A great deal of emphasis is, therefore, placed by the bank to assess the

creditworthiness of the promoter, his managerial & entrepreneurial capacities and his

financial status, technical qualification, business experience etc.

C] About the credit facilities:

The present approach of banks is to grant need oriented credit facilities only. The concernmay require different types of credit facilities including non fund based facilities for its

smooth operations. A detailed study of these requirements should, therefore, be

necessary.

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D] Financial Analysis:

One of the foremost considerations for granting credit facilities for any project is thefinancial position of a concern. Banks employ various techniques for financial appraisal.

However, there is neither any uniformity in appraisal nor any standard norms are fixed

for such appraisal. Bur there are some important common features of financial appraisal.

Financial appraisal revolves around two important financial statements which are

required to be submitted by the borrower with the loan application. These are BalanceSheet and Profit & Loss A/C.

S Bank carries out dynamic financial analysis by scrutinizing the audited accounts for

previous years so as to ascertain the trend of growth in production, sales, profitability andimprovement / impairment in all important financial parameters in order to know the

overall health of the borrowal account.

Ratio Analysis: A ratio is a statistical yardstick that provides a measure of therelationship between two variables or figures. The appraising official has to steer a

careful course. His experience and objectives of analysis help him in determining whichof the ratios are more meaningful in a given situation. Further, ratios do not provide a

definite answer to financial problems. There is always the question of judgment as to

what significance should be given to the figures. While some standards of reference and

sources of background material may be found useful in this connection, in the finalanalysis, one must rely upon one's own good sense in selecting and evaluating the ratios.

The following are the desired / indicative levels fixed by S Bank for different classes ofborrowers:

1. Total Debt Equity Ratio: The indicative Debt Equity Ratio for different classes ofborrowers is given below. Adherence to the same will help the Bank in maintaining a

healthy credit portfolio.

Sr.

No.

Category of the Borrower Indicative

Total D/E

Ratio

In Case of 100% or more Collateral

Security

Indicative Total D/E Ratio

a)

b)c)d)

e)

f)

Total Debt Equity Ratio

Industries (Medium &

Large)

Industries (SSI)TradersShip Breaking

Service Industry

Infrastructure Sector

3.5:1

4:15:16:1

5:1

5:1

4.5:1

5:16:17:1

6:1

6:1

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2. Current Ratio:

Sr. No. Assessment MethodRatio (Indicative)

1 Turnover Over Method 1.10:1

2 Modified MPBF Method :-

i)Working capital limit up to Rs.10.00 Crore

ii)Working capital limit above Rs.10.00 Crore

1.17:1 #

1.25:1 #

# While working out MPBF, minimum margin to be taken @ 15% or 20% of total current

assets so that minimum current ratios are maintained at 1.17 and 1.25 respectively.

In case of item no 2 (i) & (ii), where the adequate future cash accruals are envisaged and

the present current ratio is lower than the minimum, the Bank may consider WorkingCapital Term Loan (WCTL), repayable over a period of of 3 to 5 years and comply with the

current ratio.

In case of assessment under turnover method

a) Margin requirements are to be maintained upfront.

b) Where upfront NWC is higher than the minimum margin requirements, the MPBF

may be computed by excluding the minimum margin requirement from 25% of theaccepted turnover.

3. Interest Coverage Ratio: Interest Coverage is an indicator as to the number of

times the profit covers the interest liability of the company. This is a risk parameter

and an indicator to the extent to which the interest liability will be serviced on time.Profit for this purpose would mean the gross profit before interest. Indicatively

Interest coverage will be between 1.50 and 1.75. Companies having term loan

obligations should have higher interest coverage ratio to serve term liability.

4. Debt Service Coverage Ratio (DSCR): The Bank normally considers projects

having average DSCR between 1.50 and 2 as adopted by the FIs. The Bank proposesto continue with the same policy.

5. Current Assets Turnover Ratio: {Gross Sales/(Debtors+ Inventory)}: This ratiowill indicate the turnover of the current assets in a year. Generally this will be above

1.75.

6. PBIT to Total Assets: To have a better insight about the utilization of assets, this

ratio needs be examined to find out the comparative performance of the unit over a

period of time.

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7. Internal Rate of Return on discounted cash inflow: In case of term loans of

Rs.5.00 crores and above, this needs to be worked out and the same should not be

lower than the cost of funds.

Deviations:

The sanctioning authorities shall look for sound financial parameters in terms ofprescribed benchmarks. The stipulated parameter benchmarks will serve as

suggestive and indicative tool for the sanctioning authorities to ensure a holistic

credit decision. In case of existing borrowers whose dealings are satisfactory andlimits are fully secured, sanctioning authorities at branch levels may renew the

limits even if two parameters are not as per policy guidelines.

In case of deviations in respect of more than two parameters where renewal orenhancement is involved, Regional authority shall consider all the proposals

falling within the powers of branches.

In all other cases, where proposals fall within the powers of RegionalManagers/AGMs and above, the respective sanctioning authority may permit

deviations with due justification, on the merits of each case and having due regardto the business expediency, within their respective discretionary powers

Though the deviations are allowed by the respective sanctioning authorities asprescribed above, there should be endeavor to ensure that the borrower attains the

benchmark level of ratio/financial parameters with in a specified time frame.

The explanatory notes for allowing those deviations are mentioned.

Apart from this, pre-sanction visit / inspection will be conducted by the Banks branchlevel officials to ascertain the facts about infrastructure facilities available at the site of

the unit/ project and assess all other aspects of the project.

In case of multiple/ consortium arrangements close co-ordination with otherbanks/financial institutions at the time of the appraisal, disbursement and follow up of

advances should be ensured so that timely exchange of data / information is made for

effective monitoring and control of advance.

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ASSESSMENT OF FUND BASED LIMITS

I} Working capital:

The day to day business operations of a concern of any nature and size involves manysuccessive steps and final working results would depend on the effective combination of

all these steps. These steps put together form an operating cycle which can be represented

diagrammatically as under.

Thus, the operating cycle may be defined as the intervening period from the time the

goods and services enter the business till their realization in cash. The study of thisoperating cycle is obviously very important for calculation of working capital

requirement as the actual requirement of the unit may be limited to the funds required to

complete an operating cycle.

The Working Capital limits of the borrower are assessed by adopting various methodssuch as Projected Turnover Method (Nayak Committee Recommendation), Permissible

Bank Finance Method, Cash Budget Method etc. depending upon the aggregate workingcapital limit required / enjoyed from the banking system, nature of activity, production

cycle etc.

Purchase of

raw

material

Semi-

finished

goods

FinishedGoods

Sales

Bills

receivables/

Sundry

debtors

Cash

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Methods of assessment

For NBFCs NOF Method

For Credit limits upto Rs.2 crore (Rs.5 crore in case of

SSIs)

Turnover Method

In case working capital cycle is higher, the borrower will have the choice to be

assessed under Turnover method or Modified MPBF method.

For Credit limits beyond Rs.2 crore (Rs.5 crore in case of SSIs)

For operating cycle is reasonably uniform and working

capital remains more or less stable

Modified MPBF Method

For industries, where operations are seasonal or

project based in nature like, Tea, Sugar, Software,Contractors, Builders & Developers etc.

Cash Budget Method

The S bank mostly provides credit facilities of Rs 10 crores & above. Hence, theassessment method used commonly is Maximum Permissible Bank Finance Method

also known as MPBF method. The format of MPBF is prescribed below.

Audited Audited Estimated Projection Projection

31-03-2006 31-03-2007 31-03-2008 31-03-2009 31-03-2010

Net Sales

1 Total Current Assets

2

Other Current Liabilities(Other than Bank

Borrowing)

3

Working Capital Gap

(WCG) (1 - 2)

4

Min Stipulated NWC 25%

of TCA excluding ExportReceivable.

5 Actual/Projected Net WC

6 Item 3 minus 4

7 Item 3 minus 5

8

MPBF(Item 6 or 7 whichever is

lower)

9 Excess borrowing

Points to be noted:

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Bank borrowings and term loan installments due within 1 year are not consideredwhile calculating current liabilities.

A minimum margin of 25% to be brought in by the unit from its owned funds and

long term liabilities.

As a measure to give incentive for exports, stipulation of providing margin onexport receivable has been waived.

The borrowings in excess of permitted bank finance should normally be adjusted

by the unit by arranging funds from long term sources by way of additionalcapital etc.

II} Term Loan:

Appraisal of term loan/projects should address managerial capabilities, techno-economic

viability, marketability of products & services etc.

a. Project in brief: The brief idea about the project and purpose for which the term loan

is demanded is mentioned here.

b. Project appraised by: Bank has approved 17 State Level Technical Organizations

promoted by FIs/ Banks/SIDCs engaged in assessing Technical & Economic Viability of

the projects / Market Studies. The sanctioning authority / Appraising official is requiredto obtain complete appraisal report from the specified State level Consultancy

Organizations and / or IDBI /FIs. Their appraisal report is used as reference material

while sanctioning the loan

c. Location : The place where proposed project will be set up is mentioned. The relative

advantages and disadvantages of such location are then analyzed.

d. Cost of the project and Means of finance

i. Cost of project: A realistic assessment of project cost is done to determine the sourcefor its availability and to properly evaluate the financial viability of the project. For this

purpose, various items of cost may be sub-divided to as many subheads as possible so

that all the factors are taken into account while arriving at the total cost. The major itemsof cost are as under.

Land and site development

Buildings

Plant & machinery

Technical know-how fees

Preliminary and capital issue expenses

Miscellaneous fixed assets such as furniture, vehicles etc.

ii. Means of finance: After estimation of the cost of project, the next steo is to find outthe sources of funds by means of which the project will be financed. It can be financed by

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contribution of the funds by promoter himself and also raising loans from others

including term loans from banks and financial institutions. The means of financing

includes

Issue of share capital

Issue of secured debentures

Secured long term and medium term loans Unsecured loans and deposites from promoters, directors etc.

Deferred payments

Capital subsidy from Central/State Government.

If any additional funds have to be raised from an alternative source, the details thereof are

also provided.

e. Utilities: All factors relating to infrastructural needs, technology, availability of

machines, material etc. are required to be scrutinized under this head. Broadly speaking,

the factors that are examined under this aspect include

Land & its location Buildins

Availability of water and power

Availability of labour.

Availability of machinery, raw material and cosumables.

f. Implementation schedule : The details of project implementation schedule are

provided here. It includes month of commencement, scheduled activities, completion

period etc.

g. Repayment Period: repayment schedule of installment and interest is mentioned. Also

moratorium period, if any, is indicated.

h. Pollution Control Certificate issued by State/Central Authority and its tenability :

The performance of project may not only be influenced by the financial factors. Otherexternal environmental factors which may be economic, social or cultural may have a

positive impact as well. The larger projects should be critically evaluated taking into

account following factors-

Effect of the project on the environment with particular emphasis on the pollutionof water and air to be caused by it.

The arrangements for effective disposal of effluents as per the government policy.

Energy conservation devices etc. employed for the project.Required certificates for the same should be obtained from concerned authorities.

i. DSCR (Average): Debt service coverage ratio is calculated to find out the capacity ofthe project servicing its debt i.e., in repayment of the term borrowings and interest. The

DSCR is worked out in the following manner.

Net PAT + Depreciation + Interest on long term borrowingsDSCR = ------------------------------------------------------------------------------------------------

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Repayment of term borrowings in the year + Interest on long term borrowings

The higher DSCR would impart intrinsic strength to the project to repay its liabilities. Aminimum average DSCR of 1.5:1 is insisted upon by S bank and repayment is fixed on

that basis.

j. Break Even Point: The break- even point can be expressed in terms of volume of

production or as a percentage of plant capacity utilization. Lower the break even point,

better, better it would be to carry out the project.

k. Internal rate of return: It is the discount rate which equates the present value of

investment in the project to the present value of future returns over the life of the project.

It is an indicator of earning capacity of the project and a higher IRR indicates betterprospects for the project.

l. Sensitivity Analysis : Sensitivity analysis is carried out to identify elements affecting

the viability of project taking into consideration the different sets of assumptions likedecrease in selling price, production capacity or increase in operating expenses etc. The

impact of such changes on DSCR is analyzed. If the new DSCR, so calculated afterchanges, still proves that project is viable, the bank goes ahead in funding the project.

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ASSESSMENT OF NON-FUND BASED LIMITS

I} Letter of credit:

Rs in laca Average time taken from date of L/C till the date of shipment

(Days)

b Average time taken from date of shipment to the date of

retirement of the bill (Days)

( A )

c Average rotation of letter of credit in one year (360/A)

(times B)

Projected Purchase

d Level of L/C limit =

{Projected Purchase/Import during the year}/B

SayOur share

Whether as per Cash Flow statement there will be adequatecash accruals to retire the bills under L/C on first

presentation/due dates.

Names of the Suppliers/beneficiaries in whose favour L/Cs tobe opened

Whether credit reports on the suppliers obtained frombankers/outside agencies (especially in case of DA L/Cs)

II} Bank guarantee:

For Fresh / Enhancement limits

Nature & amount of limit sanctioned

Outstanding as on

Whether the existing limit is proposed to be

continued, if so, justification

Name of the beneficiary / ies in whose favour

guarantees to be issued

Nature of the guarantee limit required i.e.performance/ financial/ Bid Bond etc.

Margin proposed

Security

ECGC cover for export performance guarantees

Justification for the proposed limit

Asset coverage for Non-fund based limits

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2. Credit rating:

Exponential credit growth resulted in increased competition and credit delinquencies,wherein risk assessment is of critical importance. In this direction, comprehensive credit

information on the credits availed by the borrower along with payment track record is of

utmost importance before assuming exposures.

Hence, Government of India and the Reserve Bank of India established CIBIL - Credit

Information Bureau (India) Ltd to improve the functionality and stability of the Indianfinancial system. CIBIL, established in 2000 under aegis of RBI is a repository of

information, which contains credit history of commercial and consumer borrowers. Under

reciprocal basis, CIBIL provides vital information to its members in the form of credit

information reports, which allows its Members to make informed, objective and fastercredit decisions. S Bank, being one of its members, uses the services of CIBIL in their

credit decision process.

Based on the guidelines and information provided by CIBIL, following Credit RatingModel is developed for assessing the creditworthiness of the borrowers.

Credit Rating Model For Fund Based Limits Above Rs10.00 Lacs

Parameters / Risk factors to be

rated for existing projects /units

Maximum

score

Max.score

of

applicable

parameter

Score

allotted

1 External risk /Govt Policy Risk/

Environmental risk

5

2 Industry / Business / Sector risk 20

2.1 Intensity of Competition 2

2.2 Presence of substitute etc. 2

2.3 Barriers to entry for new players 2

2.4 Industry returns 5

2.5 Cyclicality in earnings, subject to

vagaries of nature technologicalobsolescence

2

2.6 Dependence on a few suppliers for

raw material

2

2.7 Borrowers dependence on a few

customers

2

2.8 Foreign exchange component of total

business

2

2.9 Whether borrower dealing in

perishable commodity

1

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3 Management Risk 15

3.1 Ownership pattern of the borrower 2

3.2 Past track record of the management 3

3.3 Quality of the management personnel 1

3.4 Experience 2

3.5 Payment record with banks 23.6 Financial conservatism 1

3.7 Market standing/credibility 2

3.8 Support from group companies 1

3.9 Succession plan 1

4 Security (Prime/Collateral) 5

5 Income value to the bank 5

6 Past operating performance vis--

vis projection and financial positionrepresented by ratios/trends.

40

6.1 Achievement of Sales projections 5

6.2 Current Ratio 5

6.3 Trend Analysis variation in Current

ratio (by more/less than 10%)

1

6.4 Interest Coverage Ratio 5

6.5 Gross SalesInventory + Receivables

3

6.6 Total debt-equity ratio 5

6.7 Trend Analysis variation in Debt

Equity ratio over the previous year(by more/less than 10%)

2

6.8 Achievement of Borrowers Profit

projectionsNet profit after tax

Sales

3

6.9 Profitability to Net worth i.e. Return

on Net worth - Net profit / Net worth

2

6.10 Profitability to sales represented by

Net profit / sales

2

6.11 Contingent Liability 2

6.12 Qualifications in B/s. & P/L audit

report

1

6.13 Diversion of Funds - No diversion 2

6.14 Guarantee to Group companies 1

6.15 Investment in Group Companies/Associates

1

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7 Conduct of the account 10

7.1 Timely submission of stock and/or

Book debts statements

1

7.2 Compliance with terms & conditions 2

7.3 Timely submission of renewal /

review papers, audited financialstatements and other related papers

2

7.4 Regularity / Irregularity of the Termloan account (if any)

1

7.5 Regularity / Irregularity WorkingCapital facility (Irregularities - Excess

drawings, Returning of Cheques

drawn, Overdue / Returning of bills/Cheques discounted, Devolvement of

L/Cs opened etc.)

2

7.6 Submission of FFR-I & FFR-II 1

7.7 Conduct of the group accounts, if any 1

TOTAL MARKS (a) 100 (b) (c)

% age of marks scored (c/b) X 100

Based on the percentage scored in above credit rating model, size & tenure of loan and

sector to which loan will be given; the rate of interest on advances to be charged by bankhas been decided. Presently the banks have freedom to determine the interest rate on the

loans above Rs. 2 lacs, subject to Benchmark Prime Lending Rate (BPLR) guidelines.

While determining BPLR, banks take into consideration various factors like actual cost of

funds, operating expenses, a minimum margin to cover regulatory requirement of

provisioning/ capital charge and profit margin. As per the credit risk rating grade,additional interest is charged above BPLR. Below table shows the interest slabs charged

by S Bank for different credit risk rating grades.

Marks

secured

Credit

Risk

Rating Grade

Interest Slabs

Non- SME M.E. SSI

95% and

above AAA High - Prime BPLR BPLR BPLR

90% to 94% AAMedium Prime PLR + 0.50 PLR + 0.25 PLR + 0.25

85% to 89% A Low - Prime PLR + 1.00 PLR + 0.50 PLR + 0.5080% to 84% BBB Excellent PLR + 1.25 PLR + 0.75 PLR + 0.75

75% to 79% BB Best PLR + 1.75 PLR + 1.00 PLR + 1.00

70% to 74% B Better PLR + 2.00 PLR + 1.50 PLR + 1.25

65% to 69% C Very Good PLR + 2.50 PLR + 2.00 PLR + 1.50

60% to 64% D Good PLR + 3.00 PLR + 2.50 PLR + 1.75

55% to 59% E Satisfactory PLR + 3.50 PLR + 3.00 PLR + 2.00

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Important remarks to be considered:

For existing borrower, if CRR are below 55, no enhancement is considered by any

authority & borrower is advised to make alternative arrangement at the earliest so

as to provide exit route to bank.

Also, no new account and new project is financed where score obtained is less

than 60 & 70 respectively, except in case of specific permission obtained from

CMD/ED in this regard.

However, bank offers loans at below BPLR to exporters or other creditworthy

borrowers.

In case of borrowers availing aggregate credit limits of Rs.5 Crore and above,

credit rating exercise is applicable twice a year, once based on audited financial

accounts and once based on provisional half yearly accounts as per extant

guidelines.

Even non fund based exposure are rated and all proposals are accompanied by the

Credit Score Sheets duly approved by the Competent Authority.

Concession in interest rate:

With increased competition amongst banks for garnering new business, interest rates

have become a major tool to determine competitiveness of a bank for attracting newbusiness and to retain the existing clients. Keeping in view business interest, under-

mentioned authorities are empowered to consider relaxation in rate of interest as under,

provided such concession is supported with proper justification in business interest of thebank and/or overall yield for deployment of resources:

Designated Authorities for extending concessional interest rate

1% below the applicable rate as per Credit Rating and not less than

BPLR within his discretionary powers

DGM

2% below the applicable rate as per Credit Rating and not less than

BPLR1% within his discretionary powers

GM

2% below BPLR irrespective of Credit rating and discretionary powers ED

4% below BPLR, irrespective of Credit rating and discretionary powers CMD

Concessional interest rates so sanctioned shall be reviewed with next credit rating basedon audited/provisional financial statements as per the extant policy guidelines. Requests

of companies for frequent reductions in rates should normally be discouraged.

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3. Credit Sanction & Documentation

The appraisal cum proposal memorandum shall be placed before the competent authorityfor consideration with specific recommendations as to whether or not to approve the

credit facilities. The recommendation for approval shall include nature and extent of

credit facilities proposed, purpose, securities, margin, rate of interest, commission,repayment, tenor of bills, guarantee etc. Further, the Bank shall stipulate all necessary

covenants to ensure that:

The Bank funds are utilised for the purpose it is lent.

There is no diversion of funds.

The business entity maintains financial stability.

Securities stipulated are charged properly.

The Bank is able to have proper monitoring and control over the

exposure.

The borrower complies with laid down guidelines of the Bank/regulatory

requirements.

Once the bank is satisfied with all the information given by borrower, it sanctions theloan. The authority to approve credit, both fund based and non-fund based or a

combination of both, including enhancements in respect of existing borrowers shall be as

per the Banks Delegation of Discretionary Powers for Conducting Banks Business asapproved by the Board of Directors from time to time.

After the project has been approved, a formal financial letter of intent is issued in favour

of the applicant in the prescribed form enclosing therein the following other papers-

1. Special terms and conditions as applicable to the financial assistance.

2. General conditions as applicable to the financial assistance.3. Specimen copy of common loan agreement.

4. Draft of the resolution to be passed by the Board of Directors of the borrower for

accepting the letter of intent.

Credit Amount Sanctioning Authority

Up To 10 Crs. General Manager

10 Crs 45 Crs Executive Director45 Crs 60 Crs Chairman & Managing Director

Above 60 Crs Management Committee

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On receipt of letter of intent the applicant must scrutinize the papers and may seek any

additional clarification from bank, if necessary. If the terms of sanction are acceptable,

the borrower may simultaneously take the following steps.

1. Convene a board meeting for acceptance of letter of intent, passing the board

resolution and also to approve all the loan documents and to get necessaryauthority of the board for execution of documents.

2. Finalize a final drawal schedule depending on the progress of project

implementation.3. To obtain draft copies of other loan documents such as deed of hypothecation

and/or letter of guarantees etc.

4. All the documents are then to be executed by executed by authorized persons in

the legal department of the lending institution.

Legal Audit All the documents including mortgages shall be verified and vetted by

legal officer /Panel Advocate to ensure enforceability and validity of the documents as

per the extant guidelines and a certificate to this effect shall be kept on record. LegalDepartment will monitor the Legal Compliance.

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4. Credit Disbursement and charging of securities

The bank gets all the documents executed and then disburses the loan.

Disbursement may be in the stages depending upon the progress in project

implementation and will be subject to compliance of pre-disbursement and other

special conditions. Promoter has to first bring in substantial part of hiscontribution before any disbursement of loan by the bank. An auditors certificate

may also be required for this purpose.

A progress report on project implementation giving details of expenditure alreadyincurred under various heads and a fund flow statement showing therein the

phased requirement of funds for timely execution of the project must also be

submitted to the bank. The bank will evaluate these reports and finalize adisbursement schedule which will further be subject to review from time to time

on the basis of progress in project implementation.

All the disbursements are made by cheque drown in favour of the borrower andthe date of cheque is taken as the date of disbursement of loan.

All these cheques are required to be deposited in special bank account to bemaintained for this purpose.

The borrower must keep proper record of withdrawals from this special account

and also authorize his bank to reveal all the information regarding operations in

this account. The borrower is also required to furnish a statement showing the

manner in which the loan already disbursed has been utilized. The statement is tobe submitted to the bank at the end of each month following the month in which

the loan money is disbursed.

Entire loan is not disbursed as long as final security is not created. Usually 10 %of sanctioned loan is withheld and disbursed only when all the formalities in this

regard are completed.

Security:

The Bank will prefer to have its credit exposure covered by tangible security (either

primary or collateral) to the full extent of its liability. All loans by bank are securedprimarily by:

(a) A first mortgage and charge of all the borrowers immovable properties, both presentand future, in favour of bank

(b) A first charge by way of hypothecation of all borrowers movables, including

movable machinery, spares, tools and accessories in favour of lending bank subject to

prior charges created and/or to be created.

Collateral Security will be obtained to cover any shortfall in value of prime security in

case of existing borrowers and in the case of new borrowers. The Banks policy withregard to Collateral securities shall be as under:

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For New Borrowers: The Bank shall endeavor to obtain collateral security by way of

fixed assets/ cash margin / shares etc.

10% to 20% of Fund based & Non Fund Based limits. However, in case of PSUs and borrowers with AAA, AA, and A rating as per our

Bank's rating system no collateral may be insisted upon.

In case of Consortium advances, the Bank will follow the decision on theCollaterals as agreed to by the Consortium bankers.

Bank may insist on collateral security up to 10% in case of medium scale

borrowers.

Collateral Security for tiny sector and Small Scale Sector will be as per HO

guidelines and revision from time to time

For existing Borrowers (upon sanction of enhanced FBL/NFBL limits): Therequirement of collateral security shall be

10% to 20% of Fund based and Non Fund Based limits Normally no collateral security may be insisted upon over and above existing

collateral security if any, provided prescribed margins are maintained and the

borrower is having good track record, sound financial position and satisfactory

dealings with the Bank. In case of PSUs and borrowers with AAA+, AA, A rating as per our Bank's policy

no collateral security needs to be insisted upon.

In case of Consortium advances, the Bank may follow the decision on theCollaterals as agreed to by the Consortium bankers.

Deviation Any non-conformity with the security norms may be considered by the

sanctioning authority on merits after duly recording the reasons there for.

Personal Guarantees of promoters:

With regard to obtaining personal guarantee of promoters, the Bank will be guided byregulatory guidelines issued from time to time. However, the Bank should invariably

insist for personal guarantee of promoters in all borrowal accounts except in PSU, Large

Customer having AAA, AA, A rating and under consortium arrangement. Sanctioning

authority may take a view looking to overall credit worthiness of borrowal account.

Nevertheless the legal department of the bank will communicate to the borrower

regarding final creation of security and the date from which the mortgage is deemed to be

created. On the failure of creation of charge on time, penal rate of interest can be chargedby bank on the entire outstanding loan till the date of creation of charge.

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5. Credit Monitoring

Credit Monitoring is one of the fundamentals in building healthy credit portfolio forensuring recovery of interest and principal. Thus, Maintaining a Constant Watch on the

Conduct & Performance of the Borrower is essential to initiate proactive measures to

safeguard the asset as well as its earnings. This activity is Credit Monitoring.

Credit Monitoring involves Tracking early detection of all warning signals on the

health of the borrower, Threadbare analysis of warning signals, diagnosing the reasonsand initiating timely corrective/remedial actions to prevent loan loss.

Credit Monitoring Mechanism:

Monitoring of advances is under taken through study/objective analysis of

Conduct and Operations in the Account

Statement of Stocks / Book Debts & Audit thereof. Inspection / Verification of Assets Charged

Financial Follow up Reports (FFR)

Quarterly Review Sheets (QRS)

Monthly Control Returns (M1-M9) & M2

D-3 / W-3 Returns

Credit Rating & Periodical Review / Renewals

Steps in Credit Monitoring:

Compliance Culture:

Compliance to Policy Guidelines, timely submission of various returns without

compromising on quality of updated data/information is to be imbibed as a Culture for

effective and organized monitoring at all levels. Branches, Regional Offices and Other

Departments shall ensure timely submission of various returns with correct and latestdata/information. Data/information received from Borrowers/market shall be subjected

to immediate objective and meaningful scrutiny for eliciting warning signals and

proposing corrective actions.

Early warning Signals:

Early detection of signals shall be picked up from all possible sources viz.

Conduct of account

Compliance of terms and conditions of sanction

Business performance

Condition of security

Market reports

Quality of Management and its Governance

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Pre-emptive /Corrective action:

Analysis of information on borrowers operations and conduct of the account, financialstatements / status, visit to the units, interaction with the borrower and market reports

shall enable the functionaries to identify the cause for the early warning signals and

propose suitable remedial measures. Accounts causing concern are identified as StandardB Assets for close monitoring purposes.

Remedial action includes allowing cut back operations, phased recovery programme, re-assessment and alignment of limits to suit Borrowers business profile, restructuring the

limits wherever warranted. Bank would support viable units only with the active

commitment of the borrowers. Nevertheless, all the credit exposure would be subject to

Credit Policy and Credit Risk Management Policy guidelines. In order to safeguardagainst the risk of default in principal and interest, Bank may propose the following

action plans

Stipulating higher margin on primary security Asking for more collateral

Influencing business decisions of the borrower

Infusion of fresh funds

Induction of more banks into the consortium

In case of unviable units or where the borrower is non-cooperative in regularizing the

dues, Bank may resort to Exit Option or recalling the advance with recovery action plans.

Credit Monitoring Cell at HO:

Credit Monitoring Cell (CMC) at Corporate Office presently monitor all Standard

Borrowal Accounts having an exposure (FB + NFB) of Rs. 1 Cr and above, known asLarge Borrowal Accounts. The threshold limit is now reduced to Rs. 0.25 Cr to cover

large number of borrowal accounts. Monthly Monitoring Report submitted by branches

every month.

End use of funds should be monitored continuously. All actual drawings by the borrower

for working capital should always be subject to the borrower maintaining sufficient

security which is determined by the level of stocks / book debts and the prescribedmargin. Certificates ensuring end use of funds from competent authorities like Chartered

Accountants /Chartered Engineers etc. shall be obtained, wherever stipulated

Accounts identified as Standard B Accounts are also very closely monitored to preventslippage into to NPA. For this purpose, a Central Slippage Prevention Committee

CSPC), headed by GM (Credit) is constituted to review the progress in such accounts, on

fortnightly basis. Similarly, Regional NPA Prevention Cells are also established, at eachof the Regional offices, to review the progress in all Standard B Accounts.

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6. Recovery:

Like any other commercial organization the primary objective of the bank has to be toearn profit from its operations, generate surplus for ensuring own stability and growth.

This is possible only if the mobilization and deployment process of the funds runs

uninterruptedly, which in turn is possible if the loans lent are recovered. The recoveryprocess is, hence, vital as it ensures booking of new business, as capital is freed and can

be redeployed profitably in creation of new assets. As long as this cycle operates

smoothly the financial health remains sound.

Continuous monitoring and relentless follow up of advances both borrower wise and

portfolio wise is important for building a strong asset base. Borrowers operating in ahighly competitive environment with swift changes in technology and dynamic macro

economic policies of Government are susceptible to business risk. To insulate the Bank

against such risks, Bank has put in place a system of classifying its Standard Assets into

A & B categories.

Standard A category assets are those which do not exhibit any signs of

weaknesses.

Standard B category assets are those that are exhibiting signs of weaknesses.

At 'S' Bank, the Regional Manager personally verifies and ensures that all accounts,

especially high value advances are properly classified into standard, Sub-std., Doubtful

or loss categories strictly as per prudential norms. It is their responsibility to finalize

and eliminate delay or postponement of identification of NPA. For greater and fasterrecoveries on time and minimization of NPAs, 'S' Bank has developed Loan Recovery

Policy, which is reviewed and modified from time to time by the board of directors on

the basis of suggestions and feedback received from field functionaries.

Objective of the policy:

1. Identification of potential NPA / Stressed Assets and initiation of prompt

corrective measures for prevention of their down gradation to NPA category.

2. Measures to maintain Asset quality

3. Management of NPA accounts by addressing related dimensions.4. To evolve and implement recovery measures through OTS compromise

schemes, recovery camps, lok adlat, securitization, sale of Assets/NPA,

regularization / rehabilitation / restructuring etc. (SC)

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Management of NPA

i) NPA Prevention Cell at Regional Office

Every region will have a NPA Prevention Cell headed by Regional Manager at the ROs

to monitor the Standard - B accounts and to ensure the prevention of their slippage to

NPA. Its functions will be as under -

a. To examine the information received from branches relating to Standard B (based on

60 days norms), NPA accounts and identify the accounts for restructuring. The entireprocess should be completed within a time frame of 30 days.

b. To review the performance of the existing restructured accounts.

c. The cell will send information on fortnightly basis to CMC, CAD Head Office,

d. Regional Manager to call for the explanation from the Branch Managers whose

performance in recovery is far from satisfactory.

Review and reporting of potential NPA / Stressed Assets:

Step-1: Analysis of reasons of deterioration of health, signs of sickness, problem

character of the A/c.

Step-2: Close interaction with the borrower, visit to the unit, close & frequent

monitoring of the account, drawing the attention of the borrower to theirregularity / deterioration in the asset quality / signs of weakness in the account.

Step-3: Advice the borrower to correct the irregularity immediately in a time boundmanner and obtain his categorical assurance.

Step-4: Corrective measures for prevention of slippages:

Review the account and consider sanction of need based working capital limits on

merits, if the present limits are inadequate.

Identify Stressed Assets accounts and consider restructuring / realignment / re-

scheduling on merits.

Early warning signal, if any, to be watched and addressed to.

Verification of (i) the documents for its correctness, enforceability, (ii) correctness

of ROC (iii) insurance covers (iv) value/marketability of prime/collateral securityetc.

Verification of existence of primary / collateral security of the borrower

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Step-5: Report to the next higher authority, the details on the above aspects and

suggesting specific corrective measures in time.

Step-6: Implement the corrective action & report to higher authority.

ii) NPA Recovery Cell at the Regional Office:

Every region will have a NPA Recovery Cell headed by Dy. Regional Manager at theRegional Office to monitor / upgrade the NPA accounts for recovery / regularization.

iii) Transfer of part limits to the main branch after the account becomes NPA:

If any part limit of an account is maintained at any branch, the part limit / account should

be transferred immediately to the main branch ( i.e where the main limit exists) as and

when the account is classified as NPA to facilitate centralized monitoring of the account.

iv) Monitoring of newly slipped NPAs by Credit Department:

Once the account turns NPA, it has to be monitored promptly and properly. In terms of

boards directives all standard B accounts would continue to be handled by the Credit

Dept. at HO / RO even after down gradation of the same to NPA till the Credit Dept.concludes that there is no scope for rehabilitation / restructuring / regularization etc. and

initiation of recovery action is the only alternative.

v) Up gradation of the NPA account

If overdue interest and principal is paid in a NPA account, the account should beclassified as standard.

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S BANKS CREDIT PORTFOLIO AND ANALYSIS OF ITS

CREDIT LENDING PATTERN

India Vision 2020 of Government of India targets an annual GDP growth of 8.5% to

9% over the next 20 years. Economic development of this magnitude would call forconsiderable investments in infrastructure and enormous funding requirements, which

would pose challenge to banking and financial system. Public-private partnership and

commercial funding in infrastructure projects will be more dominant in the years ahead.Service sector would assume greater importance. SME sector will emerge as a vibrant

sector in view of its employment generation and significant contribution to GDP. Indias

share in international trade is below 1%, accounting for less than 15% of GDP, which isexpected to go up to 35%.

Taking cues from such macro economic scenario, development in the financial sector,

changing market realities, business priorities, Government policies, regulatory

prescriptions, past experience, and to enhance a healthy growth in credit portfolio, SBank has fine-tuned its loan policy.

Specific Industry/Sectoral Limits (Credit Concentration)

With a view to avoid concentration of credit in some particular sectors, the S Bank

observes the following ceilings in respect of total exposure by way of fund based limit as

a percent to Gross Bank Credit, industry-wise as under :

Sr.

No.

Industry / Sector

Ceiling as percentage to

Gross Bank Credit Not to

Exceed (of last quarter)1 Infrastructure Finance

a) Power 15.00%

b) Roads /Bridges /Ports & Dams 7.50%

c) Telecom 7.50%

2 Information Technology & Bio-Tech 5.00%

3 Gems & Jewellery 7.50%

4 Iron & Steel 7.50%

5 Metal & Metal Products 5.00%

6 Sugar Industry 1.00%

7 Advances against Shares & Debentures 1.50%8 Advances to NBFCs 10.00%

9 Ship Breaking 0.50%

10 Construction including Builders & Developers 7.50%

11 Chemical & Petrochemical 5.00%

12 Pharma 2.50%

13 Textiles 5.50%

14 Educational Institutions 2.50%

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15 Real Estate Sector 25%

16 Others-Advance to any other Particular Industrial

Sector5.00%

The ceilings as above are indicative only and it is not envisaged that any credit worthy

proposal will be turned down only on the ground that above ceiling may be exceeded. Inthe event of such a situation, the Board of Directors or Management Committee of the

Board may, at their discretion, consider such proposals beyond the prescribed ceilings on

merits.

The sector-wise ceilings are monitored at quarterly intervals and compliance thereto,

along with details of deviations if any, shall be placed before the Board of Directors by

Credit Risk Management Department, HO.

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1. Industry wise Analysis:

As a part of this project, I have taken the data of past 2 years i.e. 2006-07 and 2007-08 toanalyze industry wise credit lending pattern. Below is the table indicating the various

industries to which credit facilities are provided by S bank and their corresponding

ranks. Rank 1 indicates the highest amount of credit facilities whereas rank 10 indicatesthe lowest amount of credit facilities.

Rankings:

Rank Industry1 Financial Services

2 Infrastructure

3 Steel

4 Telecom

5 Other Service Industry6 Other Manufacturing Industry

7 Textile

8 Petrochemical

9 Pharmaceutical

10 Individual

0

50000

100000

150000

200000

250000

Amount

in lacs

1 2 3 4 5 6 7 8 9 10

Indusry Ranks

Industrywise credit

2006-07

2007-08

Findings:

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The industry rankings turned out to be same for both the years. The credit lendingtrend shown by S Bank is the picture of real economical an industrial changes

happening in recent years.

The economy of India has proven to be highly conducive in terms of domestic andforeign investments, in recent years. India Investments have been predicted as the

propelling force towards the country's attainment of self-sustained growth by

rapid industrialization. The effect of this can be seen in credit lending pattern ofS bank. The above graph shows that S bank has provided highest amount of its

credit assistance to the financial service providers which includes NBFCs,

housing finance companies, stock broking companies, other private banks etc.

The 2nd in the list is infrastructure. Infrastructure Industry in India have been

experiencing a rapid growth in its different sectors with the development ofurbanization and increasing involvement of foreign investments in this field.

According to the India infrastructure Report (IIR), currently 5.5 percent of theGDP is invested in the infrastructure sector. The S Bank has taken initiatives to

develop the infrastructure sector, with major emphasis on construction,engineering, IT, and utility to name some.

The Indian steel industrys progress of late has been encouraging in recent years.The last two years have seen the deregulated Indian steel industry performing at

its peak level in almost all spheres. Hence, credit assistance to this sector is at the

3rd rank.

India's 21.59 million-line telephone network is one of the largest in the world and

the 3rd largest among emerging economies (after China and Republic of Korea).Given the low telephone penetration rate - 2.2 per 100 people of population,

which is much below the global average, India offers vast scope for growth. It is

therefore not surprising that large investment is done by S Bank in telecom

sector also.

Other service industry includes mainly airline, educational institutes,

entertainment etc. and other manufacturing industry includes manufacturers ofelectrical equipments, packaging material to name a few.

The textile, petrochemical and pharmaceutical industries are few of the key

industries in India contributing significantly to both the industrial and economicgrowth of the country. Hence, significant investment is made in these sectors also

by S bank.

Few loans are given to individual borrowers for their personal purpose.

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2. Sanctions:

S bank is experiencing a growth in its operations. It is credit amount is also increasingover the years. It is maintaining a good credit account of the existing borrowers and at the

same time acquiring new clients every year in order to increase its client base.

In order to analyze the pattern of sanctions, it is divided into 3 categories.

1. Fresh sanctions.

2. Additional Sanctions to existing borrowers.3. Other existing borrowers with same credit limit.

Below is the pie chart showing percentage and amount of these categories.

Sanctions during 2006-07

73671.00, 14%

325080.00, 64%

111296.00, 22%

Fresh Sanctions

Additional sanctions to existing

borrowers

Other existing borrowers with

same credit limit

Sanctions during 2007-08

162794.00, 25%

263949.00, 39%

237556.47, 36%Fresh Sanctions

Additional sanctions to existing

borrowers

Other existing borrowers with

same credit limit

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3. Fund wise Analysis:

S bank provides a large variety of credit facilities to meet all types of needs of itscustomers. These are mainly categorized into fund based and non fund based facilities.

A. Fund based facilities 1. Cash credit/ Overdraft

2. Working capital demand loan

3. Term loan4. Bills discounting

B. Non-fund based facilities -1. Letter of credit

2. Bank guarantee.

3. Inland bills

4. Packing credit

5. Export bills.

050000

100000150000200000250000300000350000400000450000500000

Amount in Lacs

2006-07 2007-08Year

Fundwise analysis

Fund based

Non-fund based

The above graph shows that bank has provided most of its credit assistance in fund basedcategory. But along with it significant amount of non-fund based credit assistance is also

provided by bank. Also both the facilities are increasing in amount over the two years. It

shows that the bank has large client base which is growing year by year.

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CREDIT

APPRAISALOF ABC PVT

LTD.

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S BANK

CORPORATE BUSINESS BRANCH

MUMBAI

Credit Rating D

Asset Classification New Account

Credit Committee Clearance date 26/06/2008

Banking Arrangement Sole

Name of Borrower: ABC Pvt Ltd.

Branch: CBB Region: Head Office

Submitted to: ED For: Tick (P)

CMDReview / Renewal

Enhancement

ED

Fresh Sanction

GM In-Principle-Sanction

Ratification

Issue of NOC

Reduction in interest rate

Modifications in other

terms

of sanction

Write-off

Compromise Settlement

Noting / Information

Others

Date: 26/06/2008

S BANK, CORPORATE BUSINESS BRANCH, MUMBAI

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PROPOSAL NO.: 12345 Date:26/06/2008

SANCTIONING AUTHORITY Executive Director

1. PROFILE

Proposal

for

Enhancement of credit limit along with takeover of existing Co. Op. Bank

credit limit consisting1. Term Loan of Rs 1253.60 Lacs for a period of 5 years @ 12%. (6

months of moratorium and repayment in 5 years, in 60 equal

monthly installments)2. Working Capital/ Cash credit of Rs. 940.98 Lacs @ 13% rate of

interest.

3. Bank Guarantee of Rs. 100 Lacs.

(Rs. In Lacs)

Nature of limits From To Variation (+/-)

Fund Based

- Term Loan 0.00 1253.60 (+)1253.60

- Working Capital/ Cash Credit 0.00 940.98 (+)940.98

Non Fund Based

- Bank Guarantee 0.00 100.00 (+)100.00

Total Nil 2294.58 (+)2294.58

Banking arrangement Sole / Consortium / Multiple Sole

Lead Bank / Our Share NA

Banking with us since New Account

Account last renewed/reviewed Dtd. NA

Authority : NA

Asset Classification New Account

Whether the company / promoters /directors figure

in Caution List defaulters list RBI, ECGC etc.

(Reasons for recommendation if they are still on

the list)

NO

Date of Establishment / 7th December, 2001

Name of Borrower ABC Pvt Ltd.

Branch: CBB, Mumbai Region: Head Office

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incorporation

Line of Activity Manufacturer of Plastic & Aluminium Caps &

Closure for Cosmetics Packaging Industry

Addresses

Address of Registered office/

Principal Office

18 Nigos Ind. Estate, Kama Estate Road, Kalyan

(E), Mumbai 400 063Location of business/ factory Survey No. 66, Gala No. 26, 28 & 30, Sativali

Road, Valiv Phata, Vasai (E), Thane 401 205

Sector Private

Type of Industry Packaging Sector

2. NAMES OF DIRECTORS & NET WORTH

(Rs.in lacs)

Name of Partner/Director Designation Net Worth

As on Basis

1 Mr. Praful Bhanji Nandola ManagingDirector

126.77 31/03/2007 PersonalBalance

Sheet & IT

Returns.2 Mr. Bhanji Bhojraj Nandola Whole time

Director21.78 31/03/2007

3 Ms Mina Praful Nandola. Whole time

Director

31.58 31/03/2007

Whether Proprietor / Partner/ Director / Guarantor has any

relationship with any Senior Official (Scale IV & Above) of the

Bank . If so give details (Refer to Guidelines)

NO

Major Shareholders

The present share-holding of the Company is as under:

Name of Share-holders No of

Equity

Shares

Total Face Value % of Shareholding

Meena Praful Nandola 5500 550000 55.0%

Praful Bhanji Nandola 4490 449000 44.9%Praful Bhanji Nandola HUF 10 1000 0.1%

Total 10000 1000000 100%

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3. PROPOSED LIMIT WITH PRESENT BORROWING ARRANGEMENT WITH

OUR BANK:

(Rs. in Lacs)

Facility Existing Outstanding Irregularity Proposed Variation

a) Fund Based

Term Loan Nil Nil Nil 1253.60 (+)1253.60Working Capital/

Cash Credit

Nil Nil Nil 940.98 (+)940.98

b) Non - Fund

Based

Bank

Guarantee

Nil Nil Nil 100.00 (+)100.00

Total Nil Nil Nil 2294.58 (+)2294.58

(Rs. in Lacs)

With other banks/ Financial Institutions

Name Branch

Details of limits Last sanction Asset

Classi-fication

FBWC

TL NFB Date Authority

The XYZ Co-op

Bank Ltd.Goregaon 2.50 1.20 0.20 31.03.07 DGM Standard

4. DETAILS OF MULTIPLE BANKING ARRANGEMENTS: NA

5. GROUP AFFILIATION: NA

(Rs in Lacs)

B Prudential Exposure Limits As per RBI

guidelines

As per Internal

Guidelines

Individual 30992 17500Group 82647 25000

Whether the limits proposed exceed the

prudential exposure norms (Individual /

Group)

No No

In case of exceeding, permission from the

competent authority

NA

6. CREDIT RATING AND PRICING

Pricing Existing Proposed Credit Rating New Account D

Interest Rate New Account For Term Loan: 12%For working capital: 13%

Commission (NFB) New Account Performance Guarantee: 2%p.a.

Financial Guarantee: 3% p.a.

Upfront fee 0.75%

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A. Factors contributing to the up gradation / slippageNot Applicable as the proposal is for new account

B. Justification for proposing lower rate of interest/concession in charges/process

fees

ABC Pvt. Ltd falls under the small scale industry units. Their 95% of sales turnover is generated through exports.

7. SECURITY / DOCUMENATION

a) Prime security

a) A first charge by way of mortgage on the immovable and movable assets of thecompany (including all receivables and intangibles), both present and future;

b) A first charge on the Companys book debts, operating cash flows, receivables,

commissions, revenues of whatsoever nature and wherever arising, present and future,

intangibles, goodwill, uncalled capital, present and future;c) Assignment of all project contracts, documents, insurance policies relating to the plant

& machinery, rughts, titles, permits/approvals, clearances and interest of the company.

b) Collateral Security

(Rs. in Lacs)

Assets Amount

Land & Building 1200.00

Plant & Machinery 500.00

Total 1700.00

i) Percentage coverage of collateral security: 72.23%ii) Reasons in case of dilution of security coverage: NA

c) Date of creation of Charge:

New Account, charge shall be created on within 30 days from execution of the joint

documents.

d) Date of vetting of documents by legal officer /Panel Advocate:

It will be done after execution of documents as per limits of sanction.

e) Name of Guarantors & their net worth:

(Rs.in lacs)

Name of Guarantors Net Worth

As on Basis

1 Mr. Praful Bhanji Nandola 126.77 31/03/2007 Personal BalanceSheet & IT

Returns.2 Mr. Bhanji Bhojraj Nandola 21.78 31/03/2007

3 Ms Mina Praful Nandola. 31.58 31/03/2007

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8. A. COMPANY PROFILE, DETAILS OF MANAGEMENT,

PRODUCTS MANUFACTURED, USER INDUSTRIES & COMPANYS MAJOR

CUSTOMERS (IN BRIEF)

i] Company Profile:

ABC Pvt. Ltd. is a company promoted by Mr. Praful Bhanji Nandola for manufacturingand export of Perfume cap in Plastic, Aluminium & Wood, Decorative Bottles and

wooden boxes used in cosmetics packaging industry.

Today, ABC Pvt. Ltd is one of the largest cap manufacturer using plastic & aluminium as

raw material. Variety of designs and a stringent quality checks are main features of their

production systems coupled with affordably low cost for bulk and consistent orders.Their 95% turnover consists of exports to countries like Dubai, Lufthania, Russia, USA

and Middle East.

ABC Pvt. Ltd. has its own design studio and tool room. It has wide range of machine(injection moulding for plastic and presses for aluminium.). Further it has facilities like

Anodizing, Foiling, Metalising, Spray Painting and Galvanizing which helps in providing

better quality product consistently.

ii] Details of management:

ABC Pvt. Ltds core team includes

NAME Designation

Mr. Praful B Nandola. Managing Director

Mr. Vaibhav Utekar Chief Executive Officer Mr. Navin V. Gada Chief Financial Officer

Mr. Swapnil Walunj Head Product Development

Mr. Pravin Sawant Production In charge

Mrs. Anjali Raut Head Marketing

Mr. Ratnesh Dubey Quality control officer

Promoters Background:

The Board of directors is comprised of the following persons.

1. Mr. Praful Bhanji Nandola.

2. Mrs Meena Praful Nandola.3. Mr. Bhanji Bhojraj Nandola.

Mr. Praful Bhanji Nandola, aged 37 year, is the Chairman & Managing Director ofABC Pvt. Ltd. He hails from a business family based in Vagad district of Kutch, Gujarat.

He started out with a manufacturing of Aluminium caps in the year 1991, and has more

than a decade experience in the cosmetics packaging business. He promoted ABC Pvt.

Ltd in 2001 to manufacture items of cosmetics packaging. As the CMD, he is actively

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involved in the day to day operations of company and in developing strategies for future

growth and expansion based on his know how on the cosmetics packaging industry.

Due to his keen interest and expert knowledge in technicalities and marketing, today it

has become a reputed name for supply of cosmetics packaging items in the world. His

dedication and strong effort has started backward integration by in housingmanufacturing of moulds & dies which helps a company to consistently maintain its

supply chain. He is also steering new initiatives on a world scale in the field of

aluminium tin, colour cosmetics and creation of luxury brands.

Mr. Bhanji B Nandola, aged 63 years, has started his career by joining small kirana

shop in Mumbai.Today, due to his vision and foresight, he has 5 retail outlets at various

locations in Mumbai and a factory at Kandivali.

He is also actively involved in construction business. Currently, he is constructing

residential complex at Vasai. He joined the company in the year 2004 and helped in

different ways based on his rich experience.

iii] Products manufactured:

ABC Pvt. Ltds range of products includes

Aluminium cap

Plastic cap

Wooden cap

Actuators

Ferrules

Catch Pump

Decorative Bottles

Oriental boxes

Nail polish caps

Roll-on caps & adaptor

iv] User Industries:

V] Major Customers:

AAA Packaging Inc., USA Letap International

Astral Glass Pvt.Ltd Meso Pvt.Ltd.

Aero Pharma Pvt.Ltd. Modi Revlon Ltd

Allure International LLC,UAE Mahavir Russia

Al-Arnas Perfumes, UAE Pragati Glass Pvt.Ltd.

European Perfumery Works LLC, Polta S.A. Poland

Emicos International LLC, UAE S.F. Patel & Sons (India)

Gujarat Glass Pvt. Ltd. Sterling Perfumes Industries, UAE

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1. European Perfume

It is one of the leading manufacturers of perfume products in the Middle East

having turnover of about 350 crores. It was established in 1991, in Sharjah, to herald thebeginning of the most modern manufacturing facility to produce on a mass scale, a very

large variety of perfumes, cosmetics and toiletry products.

2. S.F.Patel & Sons (I) Pvt. Ltd.

This Rs. 200 crores group was established in 1992 and is located in MEPZ-special

economic zone, Chennai. Its main business is manufacture of perfumes, attars and rangeof cosmetic products like talc, hair oil, creams and lotions. Few of their brands are